Operating across several jurisdictions is no longer an exclusive feature of large multinationals. More and more medium-sized companies, family groups with expansion ambitions, and startups with clients in several countries manage cross-border flows that activate tax obligations in territories other than the parent’s. What used to be a technical problem reserved for a handful of specialized firms has become a common operational reality, and with it have also come the risks of double taxation, transfer pricing adjustments, permanent establishment reclassifications, and cross-border inspections between tax administrations that exchange information automatically.
International taxation in Spain has entered 2026 in a phase of unprecedented regulatory pressure, marked by the entry into force of Law 7/2024 that implements the 15% global minimum tax derived from the OECD’s Pillar 2, by the reinforcement of control over intragroup operations, by the intensification of automatic information exchange between more than 135 jurisdictions, and by the case-law consolidation of strict criteria regarding cash pooling, intragroup financing, and the economic substance of structures. Designing international taxation with judgment in this scenario is no longer an advanced technical option: it’s the only way to operate with legal certainty.
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What Tax Problems Appear When Operating in Several Countries
The first problem a company discovers when it starts generating cross-border flows is that no tax system operates in isolation. Every time an operation crosses a border (a payment to a subsidiary, a sale to a foreign client, a service provided from abroad, a personnel relocation, an intragroup loan) at least two jurisdictions intervene, each with its own criteria to tax that income, and the coordination between both systems is not always automatic nor always favorable to the taxpayer. The practical consequence is that without prior planning the same income can end up being taxed twice, or get trapped in contradictory interpretations that are only resolved through lengthy mutual agreement procedures.
Double taxation, withholding, and transfer pricing
International double taxation is the phenomenon by which the same income is subject to taxation in two or more jurisdictions. Spain has signed more than ninety double taxation treaties (DTTs), based on the OECD Model Convention, which distribute taxing power between the country of residence and the country of source, and which provide mechanisms to eliminate double taxation through exemption or credit. The treaty applicable to each operation determines the withholding rate at source, the classification of the income, the distribution of taxing power, and the formal requirements that must be met to invoke the treaty benefit, normally through a valid tax residence certificate.
Withholding at source on dividends, interest, and royalties that flow between jurisdictions is one of the points where the greatest tax cost concentrates when the structure is not well designed. The Parent-Subsidiary Directive (Directive EU 2011/96) and the Interest and Royalties Directive (Directive EU 2003/49) allow, within the European Union, the elimination of withholding on intragroup flows provided that the substantive requirements and the anti-abuse requirements introduced by the ATAD Directive are met. Outside the European Union, the withholding rate is set by the applicable bilateral treaty, and the difference between applying the treaty correctly or not can be up to twenty percentage points on the gross flow.
Transfer pricing, governed by article 18 of the Corporate Tax Law, requires that operations carried out between entities of the same group be valued in accordance with the arm’s length principle, that is, at the price that independent parties would have agreed under comparable conditions. The justification of the prices must be documented formally through the Master File (group documentation) and the Local File (specific documentation of each entity), and groups that exceed certain thresholds must also file the Country-by-Country Report. The Supreme Court’s STS 3721/2025 has consolidated a strict criterion on the remuneration of cash pooling systems, requiring that the position of the cash pool leader entity be documented and remunerated with the same rigor as any other related-party operation, a criterion that has strained the treasury policies of many international groups.
Risks that aren’t detected until the Tax Agency acts
There’s a specific category of international tax risks that are rarely identified before the Tax Agency detects them through automatic information cross-checking or through an inspection. The first, and most frequent, is the inadvertent permanent establishment: the tax administration recognizes that there’s a stable economic presence in Spain of a foreign entity (fixed office, dependent agent with powers, construction work that extends beyond the treaty period, significant digital presence) and demands taxation as if it were a Corporate Tax payer, with retroactive effects on the affected fiscal years.
The second is the reclassification of intragroup operations when the transfer pricing documentation is insufficient or when the applied valuation departs from the market range. The Tax Agency can replace the agreed price with one determined in accordance with the arm’s length principle, adjust the taxable base upward, and apply sanctions for tax infractions, in addition to proposing correlative adjustments to the related entity in another jurisdiction that may or may not be accepted by the foreign administration.
The third is the loss of Spanish tax residence by the company or by key executives without that loss having been planned correctly, which can activate the exit tax regime provided for in article 19 of the Corporate Tax Law and in article 95 bis of the Personal Income Tax Law (latent capital gains taxed at the moment of relocation outside Spain). The fourth is the classification of a company as a patrimonial company or as an entity without real economic activity, which can deny the application of special regimes such as the holding regime (ETVE) or fiscal consolidation and trigger retroactive reviews with relevant tax and sanctioning cost.
The fifth risk is non-compliance with international reporting obligations: Form 720 (assets and rights located abroad), Form 721 (crypto-assets abroad), Form 232 (related-party operations), the declarations derived from DAC 6 on cross-border arrangements, and those that Pillar 2 introduces from 2026 (Forms 240, 241, and 242 on the Top-Up Tax). Their omission or incorrect filing not only activates specific sanctions, but in many cases is the first evidence the administration uses to start a wider-scope inspection.
How the Corporate Structure Connects with the Tax Structure
International taxation is not designed in a vacuum. It’s the operational consequence of a corporate architecture that each group chooses, consciously or unconsciously, based on how it distributes its activities among parents, subsidiaries, branches, and permanent establishments. The coherence between the legal structure and the tax planning is what differentiates an international group with low risk from one exposed to recurring adjustments and litigation with several administrations at once.
Holding, subsidiaries, and intragroup flows
The holding structure is the architecture most used by international groups with a presence in several countries, and in Spain it finds a regime specifically designed in the figure of the Foreign-Securities Holding Entity (ETVE), governed by articles 107 and following of the Corporate Tax Law. The ETVE allows, when the substantive requirements are met, receiving dividends from foreign investees with exemption or repatriating them without additional taxation, which makes Spain a competitive jurisdiction as a holding base for groups with a presence in Latin America, Europe, and other regions. The regime requires the company to have its own material and human means to manage the participation, a requirement that has been reinforced by case law in recent years to prevent abuse.
Intragroup flows (dividends, interest, royalties, intragroup services, financing, cross guarantees) are the area where international tax planning most materializes, but also where the risks most concentrate. Each flow has its own tax treatment depending on the applicable treaty, the EU directives where relevant, the holding regime, and the transfer pricing documentation. Well-executed tax planning in Spain articulates all these flows in a single coherent design, not in isolated decisions made when each operation appears.
The fiscal consolidation regime provided for in articles 55 and following of the Corporate Tax Law allows, when the participation requirements are met (at least 75% directly or indirectly, reduced to 70% for listed companies), taxation as a single taxpayer, the offsetting of positive and negative tax bases between the group entities, and the elimination of internal operations. Joining the regime requires a formal election, a specific application, and the designation of a dominant entity or representative, and maintaining it requires demonstrating qualified ownership throughout the fiscal year.
Deductible expenses and tax incentives for international companies
The determination of deductible expenses in international operations is one of the points where inspections concentrate the most attention. Expenses for intragroup services (management fees, royalties, technical assistance, shared services) are only deductible when their reality, their usefulness for the receiving entity, and their valuation in accordance with the arm’s length principle are demonstrated. Transfer pricing documentation is the instrument that supports that deductibility, and its absence or insufficiency is one of the most frequent reasons for tax regularizations.
Spain maintains several relevant tax incentives for companies with international activity. The deduction for international double taxation allows eliminating the effect of taxation abroad through credit or exemption, as the case may be. The exemption for dividends and capital gains of article 21 of the Corporate Tax Law, subject to a minimum participation of 5% and a holding period, is one of the pillars of the regime for groups. The patent box regime allows reducing by up to 60% the income derived from the assignment of certain intangibles when the substantive requirements are met. The deduction for research, development, and technological innovation activities can reach very relevant effective rates for companies with intensive technological activity.
These incentives require, without exception, real economic substance. The era of purely formal structures with no economic activity behind them is over: both internal regulations and the ATAD directives, the OECD’s BEPS criteria, and Pillar 2 require demonstrating that the economic activity is effectively carried out where it’s declared. Purely artificial structures are reclassified with retroactive effects and, in serious cases, are subject to specific sanctions.
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When Residence or Permanent Establishment Risks Appear
Tax residence and permanent establishment are the two concepts that most frequently trigger litigation between tax administrations and the companies or executives that operate internationally. Both share a problematic characteristic: they are not determined by the taxpayer’s will but by the concurrence of factual elements that the tax administration interprets after the fact, which opens a space of uncertainty that’s only closed with anticipated planning and traceable documentation.
The tax residence of companies in Spain, in accordance with article 8 of the Corporate Tax Law, is determined by the concurrence of any of three alternative criteria: incorporation under Spanish law, registered office in Spanish territory, or place of effective management in Spain. This last criterion, the place of effective management, is the most controversial because it doesn’t depend on a registry datum but on where the management and administration decisions are effectively made. A company incorporated abroad can be declared a tax resident in Spain if the tax administration considers that its effective decisions are made from Spanish territory, with very relevant tax consequences.
The tax residence of individuals in Spain, in accordance with article 9 of the Personal Income Tax Law, requires staying more than 183 days a year in Spanish territory, or having in Spain the main core or base of their activities or economic interests, or having a spouse and dependent minor children habitually residing in Spain. The concurrence of any of these criteria attributes residence, and the loss of residence requires specific planning, especially for executives with significant assets where the exit tax regime on latent capital gains in relevant participations can be activated.
The permanent establishment is the other concept that generates the most conflicts. A foreign company can be considered a taxpayer in Spain even if it hasn’t incorporated a company or registered a branch, if factual elements concur that the administration interprets as a stable economic presence: an office or fixed place of business, a dependent agent with powers to contractually bind the foreign company, a construction work that extends beyond the periods of the applicable treaty, or a sustained significant digital presence. The residence and taxation of relocated executives, especially when they perform decision-making functions from Spain for foreign entities, is one of the classic focal points for generating unplanned permanent establishment.
Why Accounting and Taxation Must Always Be Coordinated
In international operations, the coordination between the tax area and the accounting area stops being a good practice and becomes an operational necessity. Accounting figures are the basis on which taxation is built, and when the two systems operate disconnected, inconsistencies inevitably surface in cross-border inspections or in the group’s financial consolidation.
Homogeneous financial reporting by jurisdiction is one of the Pillar 2 requirements that’s demanding the most organizational effort from the affected groups. The calculation of the Top-Up Tax is based on a large amount of data (more than two hundred potential per entity) coming from areas not limited to the tax and financial departments: human resources (economic substance measured by employees), tangible assets (value of tangible assets), intragroup operations, taxes paid in each jurisdiction. Coordinating this data requires systems, protocols, and clear responsibilities from the implementation phase.
The accounting consolidation of groups and holdings is the technical instrument that unites the financial information of all the group entities into consolidated statements that reflect the real position of the group as an economic unit. The quality of the consolidation determines the quality of the tax information: consolidation adjustments, the elimination of internal operations, currency conversion in foreign subsidiaries, and the allocation of results to non-controlling interests are areas where an accounting error directly generates a tax risk.
Coordination also materializes in compliance with recurring formal obligations. The filing of Form 232 on related-party operations, the transfer pricing documentation, the Pillar 2 report that must be included in the accounting closes since 2025, the tax residence certifications that justify the application of treaties, and the verifications that auditors must carry out from 2026 on reporting obligations linked to the global minimum tax, are pieces that only work when Corporate Tax and its regulatory compliance are managed as a continuous system, not as a one-off verification.
What Should Be Reviewed Before Expanding or Restructuring
International expansion decisions and restructuring operations (mergers, spin-offs, contributions of business lines, share exchanges) are the moments when international tax planning adds or destroys the most value. Making these decisions without a prior tax analysis is one of the most expensive mistakes a group can make, because most of these movements have irreversible effects or are reversible at a cost substantially higher than that of the prior analysis.
Before expanding to a new jurisdiction it’s worth analyzing at least three planes. The first is the form of entry: subsidiary incorporated in the destination, branch, or permanent establishment, since each figure has different tax, accounting, and liability implications and the correct decision depends on the business model, the time horizon, and the regime for transferring profits between the local entity and the parent. The second is the applicable double taxation treaty: existence, scope, withholding rates provided, mechanisms for eliminating double taxation, and formal requirements to invoke the treaty. The third is the economic substance requirements in the destination jurisdiction, which in the post-BEPS era are examined with increasing demand.
In internal restructuring operations it’s worth assessing the applicability of the special tax regime for mergers and similar operations provided for in chapter VII of title VII of the Corporate Tax Law. This regime allows, when the valid economic motive requirement is met and the formal election is exercised in time, postponing the taxation of the capital gains that the operation would normally generate, which makes restructurings viable that without it would be fiscally prohibitive. The applicable anti-abuse clause requires that the operation not have tax fraud or evasion as its main or exclusive purpose, which has given rise to abundant case law on what’s considered a valid economic motive.
It’s also worth reviewing in advance the situation of the group’s intangible assets (trademarks, patents, software, know-how) and planning their tax treatment in the new configuration, including the eventual application of the patent box regime, the transfer pricing documentation on intragroup assignments, and the articulation with integrated legal and tax advice that allows anticipating consequences in other areas of applicable law.
Operations that affect key executives (international relocations, exercise of stock options in a jurisdiction different from the one of acquisition, loss of tax residence) require specific analysis on exit tax, double taxation on employment income, and possible application of the Beckham Regime on arrivals in Spain.
If you’re considering expanding your company to a new jurisdiction, restructuring the group, opening a subsidiary or branch in Spain, or anticipating the impact of the global minimum tax on your structure, the difference between well-designed international tax planning and one built by inertia is measured in years of efficient taxation or in retroactive adjustments that could have been avoided with prior analysis.
At ILLAY Legal we support international groups, expanding companies, and executives with cross-border operations in the design, implementation, and review of international tax structures coherent with the operational reality of the business, integrating corporate, tax, accounting, and corporate immigration analysis into a single strategy. If you’d like our team to audit your international tax position and design a plan adapted to your group, contact us.
Frequently Asked Questions About International Taxation in Spain
Which groups are really affected by the Pillar 2 global minimum tax in Spain?
Law 7/2024, which transposes Directive EU 2022/2523, applies the top-up tax to multinational groups and to large-scale national groups whose consolidated net turnover is equal to or greater than 750 million euros in at least two of the four immediately preceding fiscal years. That is, it’s not a rule exclusive to multinationals: purely national groups that reach that threshold are also included. The obligation materializes through the filing of Form 240 (communication of the responsible entity), Form 241 (informative declaration equivalent to the GloBE Information Return), and, where applicable, Form 242 (self-assessment of the top-up tax attributable to Spanish entities). In the first years the transitional safe harbors are applicable, which allow simplifying the calculation when certain thresholds of effective rate or economic substance measured based on the Country-by-Country Report (CbCR) are met, provided the CbCR is technically admissible. Groups close to the threshold or that expect to reach it in the coming fiscal years should start preparing in advance, because the calculation requires homogeneous and traceable data by jurisdiction that aren’t built in a few months.
Is it mandatory to file Form 720 if the company has assets outside Spain?
Form 720 refers to the informative declaration on assets and rights located abroad for individuals and legal entities that are tax residents in Spain. For legal entities, the obligation arises when certain accounts, securities, or real estate abroad are held for amounts that exceed the legal thresholds (in general terms, 50,000 euros per asset block). The initial sanctioning regime was declared partially contrary to European Union law by the CJEU judgment of January 27, 2022, which forced a legislative reform that reduced the sanctions, but the obligation to declare remains fully in force. The traditional obligations have been joined by Form 721 on crypto-assets located abroad, with its own thresholds and mechanics. The omission or incorrect filing of these forms not only activates specific sanctions, but in practice usually is the first evidence the administration uses to start wider-scope inspections. The annual review of assets abroad and the filing of the forms on time is one of the most basic defensive practices for groups and individuals with international assets.
What transfer pricing documentation should a company with intragroup operations have prepared?
The level of documentation required depends on the size of the group and the volume of the related-party operations. Groups whose consolidated net turnover exceeds 45 million euros must prepare the Master File (group documentation, with a description of the business model, organizational structure, main intangibles, intragroup financing, and transfer pricing policies) and the Local File (specific documentation of each entity, with a detailed description of the related-party operations, comparability analysis, and justification of the applied method). Groups with consolidated turnover greater than 750 million euros must also file the Country-by-Country Report, which details by jurisdiction the income, profits, taxes paid, employees, and tangible assets. Additionally, all companies with relevant related-party operations must inform the Tax Agency through Form 232. The documentation must be prepared at the moment the tax administration may require it, not built retroactively when the request arrives, and its quality directly determines the strength of the position in the face of an eventual regularization.
How does the Beckham Regime differ from the Posted Workers Regime for income tax purposes?
They are the same figure: the Beckham Regime is the popular name of the Special Regime for Workers Posted to Spanish Territory, governed by article 93 of the Personal Income Tax Law. The popular name comes from the first high-profile case that opted for this regime after its creation in 2005. The regime allows certain taxpayers who acquire tax residence in Spain to be taxed under rules similar to the Non-Resident Income Tax for a maximum period of six fiscal years, applying a flat rate of 24% on employment income up to 600,000 euros (47% on the excess). The reform operated by Law 28/2022 substantially expanded the eligible profiles (posted workers, directors, entrepreneurs with an ENISA report, highly qualified professionals, digital nomads) and incorporated the possibility of extending the regime to the spouse and children of the main beneficiary. For international groups that relocate executives to Spain, the prior analysis of eligibility and the filing of Form 149 within the six-month period are decisive for not losing the access window.
How does the economic substance principle affect international structures after BEPS?
The economic substance principle has become the axis on which international tax control pivots after the OECD’s BEPS reforms, the European Union’s ATAD directives, and the transposition of Pillar 2. The idea is simple in its formulation: tax advantages are only recognized when the economic activity that generates them is effectively carried out in the jurisdiction that grants them, with real human and material means. Purely formal structures, companies without operational activity, holdings without their own team, entities created solely to channel flows without an autonomous economic function, are reclassified and denied the application of the claimed benefits. In practice, this requires that any international structure be able to demonstrate employees, offices, decisions made locally, real expenses, and documented economic activity in each jurisdiction where a relevant entity is located. Inspections, mutual agreement procedures between administrations, and recent tax litigation show a systematic tightening of the standard, which especially affects structures designed under criteria prior to 2018 that haven’t been reviewed since then. The preventive review of the level of substance is one of the most profitable actions an international group can undertake in the post-BEPS scenario.
